Is it Really a Green Shoots Recovery I See?
housing recovery
Nouriel Roubini, a professor at the Stern School of Business, New York University, said there was now “a big risk” that the global economy would slip into a W-shaped recession. Roubini is credited as the prophet of the current financial crisis.
Roubini is now warning of the growing threat of a global, double-dip recession, where the economy briefly recovers before slipping back into contraction. Governments and policymakers are facing the twin threat of both stag-deflation and stagflation, he wrote in the Financial Times yesterday.
This is a crisis of solvency, not just liquidity, but true deleveraging has not begun yet because the losses of financial institutions have been socialized and put on government balance sheets. This limits the ability of banks to lend, households to spend and companies to invest…
The releveraging of the public sector through its build-up of large fiscal deficits risks crowding out a recovery in private sector spending.
In other words, Roubini is confirming what many others have said: that the problem is insolvency, more than liquidity, that the government is fighting the last war and doing it all wrong, and that we should let the insolvent banks fail.
Roubini is also confirming that incurring huge deficits in order to have the federal government itself act as a super-bank is causing a reduction in – and “crowding out” a recovery in – private sector spending.
Professor Roubini said that if the world was able to stave off a double-dip recession, the most likely outcome would be a weak U-shaped recovery, with below trend growth for at least a couple of years.
downtown San Diego real estate
Buyers Overpaying on California Foreclosure Homes
California foreclosure rip-offs
If you are thinking about picking up a real estate bargain by buying a bank-owned foreclosure property, or a short sale, it behooves you to pay attention. You should always seek professional representation by a real estate agent but even so, you could end up over-paying by hundreds, or even thousands, of dollars in unnecessary costs.
The insidious implementation of a new rip-off tactic makes it extremely difficult to discern until after the sale has closed. Even when closed, your own real estate agent may not want to bring this to your attention, because they too will suddenly realize the lack of due diligence on their part, has cost you, the buyer, unnecessary costs and fees.
Currently, these buyer rip-offs are occurring on bank owned foreclosures and short sale properties. Typically, in these transactions, services such as escrow, title, and natural hazard disclosure are selected by the seller or seller’s agent. The vast majority of buyer’s agents do not counter the services because they don’t want to jeopardize acceptance of their offer. In normal situations the fees for these services are very similar from one company to another.
In California, title companies are tightly regulated, as are the escrow companies that they control. But, independent escrow companies do not have their fees regulated. This non-regulation of fees is a key to this rip-off. The term rip-off is used here quite liberally, but if the fees are properly disclosed and the buyer is aware that they are extremely high, and it is their decision whether to move forward with the transaction, in that case, there’s nothing wrong. A buyer likely won’t be happy over-paying escrow fees but if they believe they are getting a steal on the value of the property, then they may proceed just to insure their purchase.
It is not so much the exorbitant fees being charged by independent escrow companies that constitute a rip-off but the charging of the exorbitant fees without timely, proper disclosure that is a problem. Presently, this has been seen mostly in the Orange County and Los Angeles areas.
Exactly what are these exorbitant fees charged to buyers? The main fee is the escrow fee that the buyer is required to pay. I was told by one major lender that the buyer’s escrow fee on a $265,000 bank owned foreclosure was $1400. Typically, the buyer’s portion of the escrow fee on such a sale would be approximately $680. Some other high fees are: E-doc fee of $150, which would normally cost about $75; a notary fee of $250 to notarize the loan documents in the escrow office; in one case a mobile notary was required for a fee of $350 and lastly, a loan tie-in fee of $300, when typically it runs about $100.
Typically on a bank owned property and or short sales the lenders require certain boilerplate, documentation to accompany any offers or they provide this documentation as part of a counteroffer. It’s in this documentation the lender states which companies they require for the various services necessary to close the transaction. To my knowledge, the amount of fees these lender selected companies are going to charge is not a required disclosure.
The buyer’s real estate agent should not put too much credence in the fact that the offer they drew up states that the escrow fees are to be split 50-50. In the boilerplate, lender required documentation, it may state that the escrow is to go through XYZ escrow company. Another document will state that the XYZ escrow company is an affiliated or bank owned subsidiary. In this case, though technically the bank and the buyer are both paying an exorbitant escrow fee, the bank is actually paying their half of the fee to themselves. Although I have no documentation, it could also be that the required vendor boilerplate documentation states that the lender’s maximum contribution for the escrow fees will be a specific number and anything above that will be picked up by the buyer.
Even though I do not have exact information as to how these exorbitant fees are being disclosed or if they are being disclosed, I am 100% certain that these exorbitant fees are being charged on many bank owned foreclosures and short sales. The charges far exceed the norm, thus in my opinion, meet the criteria of a “rip-off.”
One major San Diego lender informed me that so far this year they originated new loans on about 30 bank owned or short sale properties. In every transaction, the escrow fees charged were way above the norm.
The simple way to cure this situation is for California to control the independent escrow fees. Barring this, or in the meantime, it is prudent for buyers’ agents involved in these types of sales to request upfront disclosure about all buyer costs.
If you are contemplating the purchase of a California bank owned foreclosure or short sale, caveat emptor.
San Diego real estate agents
Home Sales Jump in July
Home sales
The National Association of Realtors reported today that sales of previously owned homes in July rose at the fastest pace in nearly two years.
Existing homes sales jumped 7.2% to an annual rate of 5.24 million units, the highest since August 2007, outpacing market expectations for a 5 million unit pace.
Home resales in July posted the largest monthly increase in at least 10 years as first-time buyers rushed to take advantage of a tax credit that expires this fall.
First-time buyers get a credit of 10 percent of the purchase price of a home, up to $8,000. Singles must earn less than $75,000, and couples less than $150,000. The real estate industry is lobbying to have the credit extended, but its unclear if Congress will be swayed.
Sales of foreclosures and other distressed properties made up about a third of all transactions last month, down from nearly half earlier this year.
“The existing home sales data surprised a lot of investors, and investors are definitely in the buying mood,” said Alan Lancz, president of Alan B. Lancz & Associates in Toledo, Ohio. “Home prices are getting to a level that attracts bargain buyers and that’s a big positive. A floor has been established.”
San Diego commercial real estate
Unemployment in California Jumps to New High
California unemployment
The U.S. Labor Department reported today that California lost 35,800 jobs in July.
California’s unemployment rate in July of 11.6% was a post- World War II record. So far, California lost 760,000 jobs over the last year.
California is among 15 states and the District of Columbia that have jobless rates above 10 percent.
Unemployment rose in 26 states in July, but overall the jobless rate notched down to 9.4 percent in July, from 9.5 percent in June.
San Diego downtown real estate
San Diego Real Estate Sales Uptick
San Diego home sales
In a report issued by MDA DataQuick, July San Diego home sales were up by 11% from the same period a year ago. This should come as no surprise as many first-time buyers have been enticed by an $8,000 federal tax credit, interest rates around 5% and a California new-home buyer’s credit. The San Diego median home price was$320,000, up from $280,000 in January.
The best summation of the San Diego housing market was a statement by Andrew LePage, a MDA DataQuick analyst: “Overall, prices still appear soft, they’re not plunging anymore, but I also don’t see them climbing consistently month over month in most areas. When they climb, it’s pretty minor. They’re flat, at best, in most cases.”
The first time, lower end properties are generating the most interest. It is quite common to see multiple offers and properties selling for at, or over, the listed price in the first time buyer market segment. The majority of the offers are FHA with 3.5% down.
San Diego real estate agents
Housing Recovery Requires An Employment Recovery
www.brokerforyou.com
It’s amusing to read the prognosticators repeating the industry party line of a San Diego real estate market bottom and to buy now before one misses this great opportunity. Are the ‘talking heads’ just overly optimistic, espousing on unfounded hope, lies, or just ignorance?
The key to long-term house prices was, and will remain, incomes. Long-term, buyers can afford about three times income, assuming they don’t have too much other debt. Discussions on how much prices have dropped (Gee, it’s down 50% so that MUST mean it won’t fall any more!) are not of great interest if that’s all there is to the discussion.
Unemployment continues to collapse (-250k jobs is horrid, though merely less horrid than -600k jobs). Lending is tight. Consumers are still heavily in debt.
Let’s assume we get growth in 2012. Will the Fed start raising interest rates by then? Probably. If the deflationary forces of contracting credit abate and the inflationary forces of printing start to take hold, we could see rates rise sharply from 2012 to 2020. What will happen to house prices with mortgage rates at ten to twelve percent??